Now that strict Chinese Covid lockdowns are lifted, Chinese smartphone giants Oppo and Xiaomi increasingly target America’s lucrative high-end smartphone market estimated at more than $62 billion in 2023. Leading firms include Apple and Samsung. While smartphone makers compete on price and technology, they also use non-market techniques like patent litigation to disadvantage their competitors. The US International Trade Commission (ITC) is one venue where observers can watch the chess game of international patent litigation, a federal agency which has become the world’s largest de facto patent court. However the ITC need not take US security policy into account when adjudicating patent infringement claims. That means that decisions can unwittingly bolster high risk firms to the detriment of US firms and those in allied, democratic countries.
The lowdown on chips and patents
While there are thousands of inputs and associated patents to any smartphone, high end processing chips account for a significant part of the price. Snapdragon chips from Qualcomm, a leading US chipmaker, drive much of the value and performance Oppo and Xiaomi high-end smartphones. Qualcomm also supplies Huawei with chipsets, a controversial relationship given national security restrictions on the Chinese government aligned firm. While Apple uses Qualcomm chips, it has pivoted to making its own chips for certain products. Samsung too licenses some Qualcomm chips, but also produces its own and sources from South Korean manufacturers. As such the ITC is commonly known at the haven for non-practicing entities (NPEs) or so-called “patent trolls”, actors which attempt to enforce patent rights against accused infringers far beyond the patent's actual value or contribution to the prior art, often through hardball legal tactics. Notably these long-tail patents, can be the tail that wags the dog, so to speak. No-name NPEs have the same standing at the ITC as major firms.
ITC cases involving smartphones, tablets, and laptops are especially appealing to trolls because these devices contain technology covered by thousands of patents, which presents thousands of opportunities to leverage infringement claims. While a district court can award damages for infringement commensurate with the value of a patent, the only ITC remedy is a draconian, full market ban against the products using that patent.
The purpose of the ITC
While firms file complaints for patent infringement in regular courts, notably the Fifth Circuit, they bring complaints to the ITC, which is not a court as such, but a federal agency with the ability to block commerce while it undertakes investigations of patent infringement. Disturbingly, the ITC, a US agency designed to protect U.S. businesses and jobs consistent with the public interest, has become an increasingly popular venue for NPEs to bring claims of patent infringement. Troll cases at the ITC rose to record levels last year, and the wave seems unlikely to stop. Trolls are in the business of acquiring obscure patents, usually loosely connected to complex high-tech products, like smartphones. They use these patents as the basis for repeated, often specious claims of patent infringement against the productive innovative companies that actually manufacture products and support US jobs.
The blocking of Chinese government aligned products have services have proved difficult for US authorities. The US Defense Department moved to put Xiaomi on its blacklist for national security concerns, but Xiaomi prevailed in court. Oppo, owned by the secretive privately-held BBK Electronics, has not yet entered US national security crosshairs. However, as the recent Congressioanl hearing of TikTok demonstrated, current US data policy and governance cannot prevent Americans’ data from being surveilled by the Chinese government. Any data collected on any Chinese made device can is accessible by the Chinese government at any time for any reason.
In any event, ITC decisions can have security implications by unwittingly blocking safe vendors from the marketplace for an alleged infringement of a minor patent. And if ITC respondent companies settle with trolls to avoid a draconian market ban, the extortionate payments they must make to settle undermine their businesses, increase costs to US consumers, and give a further pricing edge to their Chinese competition.